External Auditors - Year End Procedure

Purpose statement

In accordance with legislative requirements the town must appoint an external audit firm to perform an audit on the consolidated financial statements of the Town of Oakville (town) and on all of its local boards. These consolidated financial statements shall be approved by Council and made available to the public.

Scope

This procedure affects Council and all staff in Financial Operations, Financial Planning and staff who are involved in:

1. the procurement of goods and services (either through purchasing cards or through purchase orders);
2. cash receipts;
3. accounts payable;
4. accounts receivable;
5. petty cash;
6. time sheet and employee reimbursement approvals;
7. cashier functions;
8. budget variances for operational units or departments; and
9. asset ownership and the related capital project closure.

It also affects staff in the local boards.

Procedure

Appointment of External Auditors – Section 296 of the Municipal Act

1. A municipality shall appoint an auditor licensed under the Public Accountancy Act, 2004 for a term not exceeding 5 years. Local boards must also use the Town’s auditors, but will be responsible for budgeting for the audit fees.
2. Changes to auditors are governed by the RFP process in accordance with the Purchasing by-law.
3. Where an extension to an existing contract is warranted Council approval shall be obtained.

Timing of Audits –interim and final audit timelines will be established annually to review the proceeding years accounting activities, generally as follows:

Interim audit – November
Local boards – year end field audit – February
Town’s field audit – March/April
Issuance of consolidated financial statements – May
Reporting to Council – June
Submission of Financial Information Return to Province – June
Charity return – Oakville Public Library – June
TOWARF – town staff review of records for annual operating grant – no audit required
Preparation of income tax receipts for eligible donations – February

Operations must be closed at a date determined by Accounting Operations to ensure that all current year transactions have been accounted for and can be accurately reflected in the consolidated financial statements subject to audit processes.

Year end

1. Manager, Accounting Operations will determine a schedule for year end close of operations, which will be communicated to all staff involved with the financial transactions noted above.
2. A separate schedule will be issued by the Manager, Payroll & Benefits as it relates to revised deadlines due to year end close and statutory holidays.
3. The year end schedule will cover the timelines for completing and closing off the current year activity for the following:
   1. Purchasing activities
   2. Accounts Payable including PCOS
   3. Accounts Receivable
   4. Payroll accruals, activities and reimbursements
   5. Cash receipts, including deferred revenues
   6. Account reconciliations for balance sheet and operational accounts
   7. Year end variance reporting
   8. Reserves and reserve funds transfers and balancing
   9. Tangible Capital Assets capitalization and disposal
4. Manager, Accounting Operations will advise local boards of timelines for receiving their financial records in order to validate transactions and prepare draft financial statements, which shall be audited by the Town’s auditors.
5. Strict adherence to timelines is essential in order to meet the audit timelines.
6. The town’s financial system CIS will serve as the official auditable record of all financial transactions, other systems, and back up schedules, etc.

Expense accruals and estimates

1. All transactions shall have supporting documents including an original vendor invoice or cheque requisition, cash receipt or accounts receivable invoice, or adequate information if there is rationale for not having such documents.
2. When an original source document is not available to substantiate a transaction, which staff deem to be relevant and material to the current year financial statements, then an accrual must be done using the recognition criteria as follows:
   1. The item has an appropriate basis of measurement and a reasonable estimate can be made of the amount involved;
   2. For an item that involves obtaining or giving up future economic benefits, it is expected that such benefits will be obtained or given up.
3. All accruals must be reviewed and approved by either the Manager, Accounting Operations, or Deputy Treasurer, Financial Operations. All accruals will be booked as automatically reversing to ensure that entries are not recorded in multiple years.
4. Subsequent to year end, Accounting Operations will review the previous accruals to ensure the corresponding expense has been recorded.

Revenue

1. All revenues must be posted in the fiscal year they are earned and collectible.
2. Government transfers (i.e. operating and capital grants) must be booked in accordance with PSAB guidelines.
3. All revenues for which funds have been received but which have not been earned must be reported as deferred revenue and allocated to future reporting periods.
4. All deferred revenue must be reviewed and approved by either the Manager, Accounting Operations, or Deputy Treasurer, Financial Operations.
5. Deferred revenue as it relates to funding of capital projects will be signed off by Manager, Financial Planning or Deputy Treasurer, Financial Planning.

Reporting to Council and the Province

1. Financial Operations staff, along with the external auditors, will present the annual audit plan to Council prior to the commencement of the annual audit.
2. Financial Operations staff will present to Council a draft form of the audited consolidated financial statements for the current year, together with a summary report detailing the highlights of the year end statements, for approval.
3. Included in the draft consolidated financial statements will be the audit opinion as expressed by the external audit firm.
4. The external audit firm will report to Council on the audit findings, which will also include any adjusted or unadjusted misstatements and management letter points.
5. Deputy Treasurer, Financial Operations will respond with suggested improvements to any management letter points.
6. Manager, Accounting Operations will file with the Ministry of Municipal Affairs the current year FIR, along with the audited consolidated financial statements, in accordance with the timelines specified by the Province.
7. Once approved by Council the consolidated financial statements together with the unaudited Five Year Review (statistical document) will become a component of the “Annual Report”, which will be posted on the Town’s website.
8. The external auditors must sign off on the financial statement component of the annual report prior to it being published.

Local board audits

1. The local boards require separate audited statements
2. Management and finance staff at each local board are responsible for closing their books and records, providing Accounting Operations with the financial information required to prepare the financial statements, and assisting the auditors in their audit work.
3. Accounting Operations will prepare the financial statements for the auditors and work with the local boards’ management to ensure the statements are ready to be presented at the appropriate board or annual general meeting.
4. Any audit findings or management letter points provided by the external auditors will be followed up by the Manager, Accounting Operations or Deputy Treasurer, Financial Operations.

Definitions

CIS: Oakville’s Corporate Information System which holds all financial transactions.

FIR: Financial Information Return; the reporting requirements of the Ministry of Municipal Affairs.

Local boards: Oakville Public Library, Oakville Galleries, and the business improvement areas.

Responsibilities

The following are responsible for:

Departments:

Submitting all relevant expenses and revenues relating to the current year in accordance with the timelines specified for closing operations and advising Manager, Accounting Operations of any accruals, estimates and deferred revenue.

Financial Planning:

Preparing supporting schedules and working papers to substantiate financial statements within the timelines, ensuring they balance to the general ledger. Ensuring that all records are available for review.

Financial Operations:

Ensuring the timely close off of the general ledger and that all current year transactions are reflected on the financial statements, as well as the reconciliation and review of all balance sheet accounts. Ensuring that all records are available for review.

Manager, Accounting Operations:

1. Establishing appropriate timelines to ensure audit readiness and completeness.
2. Review and preparation draft financial statements for the Town and local boards.
3. Consolidation of all financial statements.
4. Assisting the auditors during the field audit work and ensuring that they have access to all the Town’s financial records and other required information.
5. Presenting consolidated financial statements to Council.
6. Filing the FIR and consolidated financial statements with the Ministry of Municipal Affairs.
7. Preparation and submission of the Oakville Public Library charity return.

Deputy Treasurer, Financial Operations:

1. Ensuring the completion of the entire year end process and related financial statements.
2. Responding to management letter points issued by external auditors.
3. Facilitating and ensuring both the external audit plan and audit findings reports are taken to Council for approval and that the financial statements are available to the public.
4. Ensuring that the Administrative Services Committee, serving as the audit committee, receives presentations and relevant documents and related information from the external auditors as required.